Tag: 10-K

COVID-19: SEC Filings Are a Communication Platform

On March 25, the US Securities and Exchange Commission (SEC) issued another round of relief for public companies with regard to financial filings in light of the Coronavirus Disease 2019 (COVID-19) outbreak. The Commission provided public companies with a 45-day extension to file reports originally due between March 1 and July 1, 2020. This new order is an extension of the SEC’s earlier March relief order. As companies prepare their 10-Q and 10-K filings, boards need to ensure that their companies’ filings not only accurately identify and reflect the impact of the pandemic on their businesses, but also effectively communicate with investors.

A recent NACD poll on board responses to the COVID-19 crisis found that only 34 percent of boards at the time the survey was conducted in mid-March had reviewed their company’s external communications strategy, but this number is bound to grow as the crisis continues. As the SEC states in its recent order, “we encourage public companies to provide current and forward-looking information to their investors,” adding an important reminder about safe-harbor rules for such statements.

In speaking about future developments, companies can deprioritize issues and engagement not related to COVID-19, which is the topic most important to investors in this moment. As stated by one major investor group, such engagement “should be postponed where not related to COVID-19 to allow management and boards the ability to focus on crisis management.”

ESG Risks Trickle Into Financial Filings

Investors in 2019 have increasingly turned their attention to environmental, social, and governance (ESG) topics, and are demanding more information on how companies are thinking about the potential long-term risk and opportunities related to specific environmental and social factors. As companies prepare for the 2020 proxy season and engage with shareholders, directors should understand the current state of ESG risk reporting in public filings.

Standards setters such as the Sustainability Accounting Standards Board and the Taskforce on Climate-Related Financial Disclosures provide frameworks to disclose ESG risks that could have a financial impact. Despite, or perhaps due to, the myriad standards and suggested disclosure frameworks, companies struggle to identify the most relevant risks to disclose, and where in their reporting to disclose them. In 2019, 66 percent of companies in the Russell 3000 Index discussed ESG risk but approaches varied widely.

To help directors and their management teams understand the current landscape of ESG risk disclosure, NACD mined MyLogIQ – Multidimensional Public Company Intelligence’s data to identify trends in 10-K filings, specifically in the risk-factors section and in management’s discussion and analysis of financial condition and results of operations (MD&A). While companies may describe risks anywhere in their 10-K filings, they must list all major ones in the risk-factors section. Previously, risks were listed in the MD&A, a practice that continues in some companies.

U.S. Corporations Increasingly Adjust to Mind the GAAP

A financial obfuscation of the dot-com era is making a comeback: Hundreds of U.S. companies are trumpeting adjusted net income, adjusted sales and “adjusted Ebitda.” These adjusted measures paint a rosier picture of corporate earnings. Without them, third-quarter earnings per share fell 13% for the biggest U.S. companies, according to Deutsche Bank research, instead of falling 0.1%… Continue reading U.S. Corporations Increasingly Adjust to Mind the GAAP